It was not the most exciting Monday, commodities traders were more focused on oil rather than ags. Soybeans suffered a bit with profit taking, market was reacting to the fact funds sold more Soybeans than expected according to the latest CFTC COT. Soybeans F6 lost -6.50 cents. Otherwise, very dull on Corn and Wheat but collectively higher still on the Indian story, potential logistic issue from Canada and Australia and South American weather. Could be seen as wishful thinking considering the heavy numbers showed once again by the latest USDA WASDE. Corn H7 ended up +1 cent, Wheat H7 +1 cent in Chicago with no massive mess on the spreads as Kansas H7 was up +1.25 cent and Minneapolis H7 up +0.75 cent. Kansas H7 is at 2.50 cents discount to Chicago while Minneapolis premium to Chicago and Kansas is respectively 119.75 cent and 122.25 cent, so there’s still a lot of clean-up to operate. In Chicago, funds sold 8,000 Soybeans and bought 3,500 Corn and 2,000 Wheat. On the other side of the pond, MATIF Z6 expired with a bang: -€6.25 to €155.50, -€9.25 below the next expiry (H7). The contango increased at the right end of the life of the contract, slightly different behaviour than previous expiries, but this is a very odd crop anyway. MATIF Z6 expired -€15 below CME EU, which is still living for a few days but has only 30 lots of open interest. From 1st March 2015 to its expiry, MATIF Z5 had a daily average volume of 17,845 lots. From 1st of March 2016 to its expiry, MATIF Z6 had a daily volume of 13,982 lots. Volume has been smashed by -21.65%! If we take the start of the marketing year, it’s even worse, volume decreased by -24.34%. Quite a bad timing for CME EU. Anyway, H7 contracts finished the session -€0.75 on MATIF and -€1.50 on CME EU, the premium to CME EU was +€7.50 on the close.
The main current weather concern is focused on Argentina. Weather is a bit dry indeed, the precipitation level is on average 23% below average but a wetter trend seems to materialise itself.
Night session is so far reversing the yesterday’s move with Soybeans up +3.50 cents and Corn and Wheat small down, a few ticks or so. MATIF is expected mostly unchanged.
If export inspections showed the expected negative momentum of soybeans has now kicked-off, it was not by any means beneficial to corn and wheat. Soybeans shipments decreased for the 4th week in a row to a still very good though 1,837.36kT (actually larger than expected). Total this season so far has reached 27.91MT, same stage last year it was 23.36MT. In other words, in 14 weeks, soybeans took a 4.55MT advance compared to last year. It’s interesting to note that USDA expects US soybeans exports to be 55.79MT this season, +3.10MT from last season. In other words, soybeans can now be shipped at a slower pace than last year to make the objective, there’s 1.445MT buffer. It’s very likely to see the exports being raised in the next couple of months. Another way to see the extent of the advance is to point that the soybeans export target is 50.02% completed after only 14 weeks, it was 44% last year, it’s 42% on average. The next 38 weeks will need to average 733.9kT, this is not a lot. But as mentioned, the lower momentum on soybeans did not profit to corn. After a rebound last week above 1MT, shipments are back within the 800’s to 860.9kT, below the 10 week average of 880.9kT, bringing the total for this season to 14.95MT, 26.46% of the target (26.92% of the marketing year has elapsed), still 7.12MT above last year. Thankfully for corn, the start of the season has been really strong, USDA is expecting exports to be 8.32MT above last year (to 56.52MT) so most of the increase is in already, the pace needs to be in line with last year plus 1.22MT over the next 38 weeks. There’s no need to panic just yet then, 26.46% of the target is done, it is on line with the average and far in front last year (16%), so situation is still very under control. Corn shipments need an average of 1,093.8kT per week. Finally on wheat, after a week above half a million tons, we’re now back below to 440.8MT. Total this season so far 14.1MT which is 53.14% of the target (51.92% of the marketing year has elapsed). This is 3.14MT in front of last year while USDA expects exports to raise by 5.45MT to 26.54MT. In other words, 57.61% of the increase is in, it is very tight, there’s not a lot of margin here but seasonality is on line: at this stage of the season, on average 54% of the yearly shipments are done, with 53.14%, it is still ok, and still in front of the 52% last year. But definitely, wheat is the most worrying of the three.
Japan is seeking 122,847T of food wheat from US and Canada. Meanwhile, they announced to resume the Simultaneous Buy and Sell tender on feed wheat and barley, changing slightly the rules to make it more attractive. Algeria’s OAIC is seeking 50,000T of milling wheat, deadline tomorrow. Saudi bought a total of 725,000T of hard wheat: 430,000T CNF Jeddah at $207.42 average, 240,000T CNF Dammam at $209.75 average and 55,000T CNF Jazan at $211.74.
There was a strong focus on oil to start the week. Gap opening on Monday as it could be expected. NYMEX Crude F7 topped $54.51 before retreating and closing well off from its highs to $52.83. Market will obviously wonder if a cut of about 2% of the global supply can have a real long term on the prices and bring the price to $60/$70 on a long term basis. On top of this, there is still some doubts about the enforcement of the deal. Firstly inside OPEC, some have accused Saudi to inflate is production value in order to make the cut less painful. Also, will it be enforced by Iraq and Iran who need oil revenues for different reasons. Nigeria and Libya are exempted. Then, the Indonesia case could also make a precedent, if a country is unhappy, they can just suspend their membership. Indonesia is a particular case, they are a small producer in the OPEC and is net importer. So the deal is not unanimously seen as a victory by OPEC and Saudi. Then, outside OPEC, Russia and 10 other countries agreed to cut their production by 558,000 barrels per day from 1st of Jan, and smoothed over 6 months. But the agreement is not set on stone by any means and it’s very likely countries are going to glare at each other and wait for the first one to shoot, maybe trying to escape an actual cut. So there’s a lot of scepticism over how successful will be the production cut, and on top of this, US Shale Gas operators are going to be in the money and will certainly increase their production. NYMEX Crude is currently trading around $52.75 and ICE Brent at more or less a $2 premium. Meanwhile, Bill Gates is launching a $1b fund called Breakthrough Energy Ventures to invest in research for providing clean and cheap energy. He got a few other billionaires pals along with him as John Doerr, Vinod Khsla, Jack Ma, John Arnold, Jeff Bezos of Hasso Plattner. On Freight, Baltic Dry Index BADI was down -21 to 1,069 as Capesize Index was smashed by -7.05% and Panamax index by -2.59%.
EURUSD started the week on a higher note, back above 1.06. The calm before the Wednesday storm? Big day Wednesday indeed, FOMC will obviously be the highlight. The question is not ‘if’ FED is increasing the rates (well if it’s not happening this would be a massive surprise, and US dollar is going to take a massive hit), but ‘how much’: 2 to 3 ticks is the most likely (ie 0.50% or 0.75%). Only 25 basis points will probably be seen as a disappointment, as a tentative for FED to be credible. GBPUSD is back above 1.27 on the confidence that the Parliament won’t block or delay the Brexit and good inflationary economic data. BoE is expected to leave the rates unchanged on Thursday. No major sat today, Chinese industrial Production is steady with +6.2% year on year (+6.1% expected), Chinese Retail Sales were above expectations to +10.8% (expected at +10.2%) while fixed asset investments were as expected to +8.3%. German Finance Wholesale Price Index was below expectations to +0.1% (+0.3% expected) while the final CPI is on line with expectations to +0.1%. Italian month on month Industrial Production was flat while +0.3% was expected. Meanwhile, Italian Foreign Minister Paolo Gentiloni got a promotion and will replace Matteo Renzi in the Prime Minister job. UK’s CPI year on year was +1.2% (expected at +1.1%) while Core CPI was +1.4% (+1.3% expected). UK House price Index rose by year on year less than expected, by +6.9%, expectations were +7.3%. German ZEW later today.